Applied Materials Announces Third Quarter Results

FINANCIAL NEWS RELEASE

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Applied Materials Announces Third Quarter Results

  • Net sales up 10 percent over prior quarter
  • Results exceeded the high end of the company's EPS projections by $0.03
  • GAAP EPS of $0.09 included EES charges that reduced EPS by $0.20
  • Non-GAAP EPS of $0.17 included EES inventory-related charges that lowered EPS by $0.12

SANTA CLARA, Calif., Aug 18, 2010 (BUSINESS WIRE) -- Applied Materials, Inc. (NASDAQ:AMAT), the global leader in Nanomanufacturing Technology(TM) solutions for the semiconductor, flat panel display and solar industries, today reported results for its third quarter of fiscal 2010 ended August 1, 2010. Applied generated net sales of $2.52 billion, operating profit of $183 million, and net income of $123 million or $0.09 per share. Non-GAAP net income was $234 million or $0.17 per share.

"Applied had strong results across our semiconductor, display and crystalline silicon solar businesses, and we now expect Silicon Systems Group net sales to be up by more than 160 percent over fiscal 2009," said Mike Splinter, chairman and chief executive officer. "During the quarter, we took actions that focus our Energy and Environmental Solutions segment on our most promising opportunities in solar and advanced energy, and strengthen our company's financial outlook."

The EES restructuring plan announced on July 21, 2010 resulted in charges totaling $405 million. These charges consisted of inventory-related charges of approximately $250 million and severance and asset impairment charges of $155 million. The inventory-related charges lowered gross margin by approximately 10 percentage points and reduced GAAP and non-GAAP EPS by $0.12. Excluding the EES restructuring plan charges, non-GAAP EPS would have been $0.29.

Applied's May business outlook was for non-GAAP EPS of between $0.22 and $0.26. At the announcement of the EES restructuring plan on July 21, 2010, the non-GAAP EPS outlook was revised to between $0.10 and $0.14.

Financial Results Summary

Q3 FY2010 Q2 FY2010 Q3 FY2009
GAAP Results
Net sales $2.52 billion $2.30 billion $1.13 billion
Net income (loss) $123 million $264 million ($55 million)
Earnings (loss) per share $0.09 $0.20 ($0.04)
Non-GAAP Results
Non-GAAP net income (loss) $234 million $292 million ($33 million)
Non-GAAP earnings (loss) per share $0.17 $0.22 ($0.02)

The non-GAAP results exclude the impact of the following, where applicable: restructuring and asset impairments, certain acquisition-related costs, investment impairments, and amounts associated with the resolution of income tax audits. Effective the first quarter of fiscal 2010, the non-GAAP results no longer exclude the impact of share-based compensation. A reconciliation of the GAAP and non-GAAP results is provided in the financial statements included in this release.

Reportable Segment Results

Silicon Systems Group (SSG) orders increased to $1.54 billion, net sales increased to $1.45 billion, and operating income rose to $525 million or 36 percent of sales. New order composition was: foundry 37 percent, DRAM 32 percent, logic and other 18 percent, and flash 13 percent.

Applied Global Services (AGS) orders were $595 million, up 23 percent from the second quarter led by higher demand for 200mm refurbished equipment. AGS net sales increased to $468 million, and operating income decreased to $84 million.

Display orders decreased to $242 million. Net sales decreased to $216 million, and operating income was lower, at $64 million or 30 percent of sales. The decrease in net sales and operating income from the second quarter was in line with the company's expectations.

Energy and Environmental Solutions (EES) orders decreased to $353 million. Net sales more than doubled from the second quarter to $387 million led by record demand for crystalline silicon solar equipment. EES had an operating loss of $371 million, which included $405 million in charges associated with the restructuring plan.

Additional Quarterly Financial Information

  • Gross margin was 34.2 percent including the thin film solar equipment inventory charge which lowered gross margin by approximately 10 percentage points.
  • Operating cash flow was $299 million for the quarter or 12 percent of sales, and operating cash flow for the nine months was $1.20 billion or 18 percent of sales.
  • Cash dividend payments totaled $94 million.
  • The company used $100 million to repurchase 7.9 million shares of its common stock.
  • Cash, cash equivalents and investments increased to $3.63 billion at quarter end.
  • The effective tax rate was 30.8 percent.
  • Backlog increased by $136 million to $3.13 billion.

Business Outlook

For the fourth quarter of fiscal 2010, Applied expects net sales to be in the range of flat to up 5 percent quarter over quarter. The company expects non-GAAP EPS to be in the range of $0.28 to $0.32 which excludes known charges related to completed acquisitions of approximately $0.01 per share. This outlook does not take into account other non-GAAP adjustments that may arise subsequent to this release.

Use of Non-GAAP Financial Measures

Management uses non-GAAP results to evaluate the company's operating and financial performance in light of business objectives and for planning purposes. These measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Applied Materials believes these measures enhance investors' ability to review the company's business from the same perspective as the company's management and facilitate comparisons of this period's results with prior periods. The presentation of this additional information should not be considered a substitute for results prepared in accordance with GAAP.

Webcast Information

Applied Materials will discuss these results during an earnings call that begins at 1:30 p.m. Pacific Time today. A live webcast will be available at http://www.appliedmaterials.com.

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding Applied's performance, opportunities, and the business outlooks for the Silicon segment and total company. Forward-looking statements may contain words such as "expect," "believe," "may," "can," "should," "will," "forecast," "anticipate" or similar expressions, and include the assumptions that underlie such statements. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including but not limited to: the level of demand for Applied's products, which is subject to many factors, including uncertain global economic and industry conditions, business and consumer spending, demand for electronic products and semiconductors, government renewable energy policies and incentives, and customers' utilization rates and new technology and capacity requirements; variability of operating expenses and results among the company's segments caused by differing conditions in the served markets; Applied's ability to (i) develop, deliver and support a broad range of products, expand its markets and develop new markets, (ii) timely implement effective cost reduction programs, realize expected benefits, and align its cost structure with business conditions, (iii) plan and manage its resources and production capability, including its supply chain, (iv) implement initiatives that enhance global operations and efficiencies, (v) maintain effective internal controls and procedures, (vi) obtain and protect intellectual property rights in key technologies, (vii) attract, motivate and retain key employees, and (viii) accurately forecast future operating and financial results, which depends on multiple assumptions related to, without limitation, market conditions and business needs; risks related to legal proceedings and claims; and other risks described in Applied Materials' SEC filings. All forward-looking statements are based on management's estimates, projections and assumptions as of the date hereof. The company undertakes no obligation to update any forward-looking statements.

About Applied Materials

Applied Materials, Inc. (Nasdaq: AMAT) is the global leader in Nanomanufacturing Technology(TM) solutions with a broad portfolio of innovative equipment, services and software products for the fabrication of semiconductor chips, flat panel displays, solar photovoltaic cells, flexible electronics and energy-efficient glass. At Applied Materials, we apply Nanomanufacturing Technology to improve the way people live. Learn more at http://www.appliedmaterials.com.

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
August 1, July 26, August 1, July 26,

(In thousands, except per share amounts)

2010 2009 2010 2009
Net sales $ 2,517,790 $ 1,133,740 $ 6,662,232 $ 3,487,213
Cost of products sold 1,657,662 808,866 4,164,028 2,615,244
Gross profit 860,128 324,874 2,498,204 871,969
Operating expenses:
Research, development and engineering 290,398 234,052 865,329 699,927
General and administrative 145,994 88,487 396,572 330,808
Marketing and selling 105,754 79,518 303,369 248,311
Restructuring and asset impairments 135,331

--

248,143 159,481
Total operating expenses 677,477 402,057 1,813,413 1,438,527
Income (loss) from operations 182,651 (77,183 ) 684,791 (566,558 )
Pre-tax loss of equity method investment

--

--

--

34,983

Impairment of equity method investment and strategic investments

7,804 2,341 12,665 79,422
Interest expense 5,496 4,893 15,762 15,945
Interest income 8,480 10,233 27,253 37,257
Income (loss) before income taxes 177,831 (74,184 ) 683,617 (659,651 )
Provision (benefit) for income taxes 54,735 (19,319 ) 213,766 (216,462 )
Net income (loss) $ 123,096 $ (54,865 ) $ 469,851 $ (443,189 )
Earnings (loss) per share:
Basic $ 0.09 $ (0.04 ) $ 0.35 $ (0.33 )
Diluted $ 0.09 $ (0.04 ) $ 0.35 $ (0.33 )
Weighted average number of shares:
Basic 1,339,660 1,333,278 1,342,068 1,331,410
Diluted 1,348,808 1,333,278 1,350,587 1,331,410
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
August 1, October 25,

(In thousands)

2010 2009
(unaudited)
ASSETS

Current assets:

Cash and cash equivalents $ 1,564,337 $ 1,576,381
Short-term investments 783,799 638,349

Accounts receivable, less allowance for doubtful accounts of $74,014 and $67,313 at 2010 and 2009, respectively

1,721,496 1,041,495
Inventories 1,590,052 1,627,457
Deferred income taxes, net 577,442 356,336
Income taxes receivable

--

184,760
Other current assets 314,622 264,169
Total current assets 6,551,748 5,688,947
Long-term investments 1,279,515 1,052,165
Property, plant and equipment, net 983,790 1,090,433
Goodwill 1,336,426 1,170,932
Purchased technology and other intangible assets, net 300,401 306,416
Deferred income taxes and other assets 274,268 265,350
Total assets $ 10,726,148 $ 9,574,243
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,848 $ 1,240
Accounts payable and accrued expenses 1,643,606 1,061,502
Customer deposits and deferred revenue 1,036,938 864,280
Income taxes payable 207,080 12,435
Total current liabilities 2,889,472 1,939,457
Long-term debt 204,438 200,654
Employee benefits and other liabilities 354,099 339,524
Total liabilities 3,448,009 2,479,635
Stockholders' equity:
Common stock 13,361 13,409
Additional paid-in capital 5,368,862 5,195,437
Retained earnings 11,135,753 10,934,004
Treasury stock (9,246,407 ) (9,046,562 )
Accumulated other comprehensive income (loss) 6,570 (1,680 )
Total stockholders' equity 7,278,139 7,094,608
Total liabilities and stockholders' equity $ 10,726,148 $ 9,574,243
APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

Nine Months Ended

August 1,

July 26,

(In thousands)

2010

2009

Cash flows from operating activities:
Net income (loss) $ 469,851 $ (443,189 )
Adjustments required to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization 235,742 219,609
Loss on fixed asset retirements 14,505 16,165
Provision for bad debts 6,718 62,539
Restructuring and asset impairments 248,143 159,481
Deferred income taxes (214,984 ) 96,117
Net recognized loss on investments 15,532 13,083
Pretax loss of equity-method investment

--

34,983
Impairment of investments 12,665 79,422

Share-based compensation

94,772 116,114
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable (648,477 ) 786,319
Inventories 100,305 238,510
Income taxes receivable 184,760 (296,330 )
Other current assets (37,936 ) 49,990
Other assets (6,643 ) (7,134 )
Accounts payable and accrued expenses 374,037 (632,193 )
Customer deposits and deferred revenue 166,799 (314,250 )
Income taxes payable 192,054 (122,967 )
Employee benefits and other liabilities (10,109 ) 36,527
Cash provided by operating activities 1,197,734 92,796
Cash flows from investing activities:
Capital expenditures (134,044 ) (187,804 )
Cash paid for acquisition, net of cash acquired (322,599 ) --
Proceeds from sales and maturities of investments 967,067 1,121,026
Purchases of investments (1,357,261 ) (649,417 )
Cash provided by (used in) investing activities (846,837 ) 283,805
Cash flows from financing activities:
Debt repayments, net (5,684 ) (241 )
Proceeds from common stock issuances 98,920 29,406
Common stock repurchases (200,000 ) (22,906 )
Payment of dividends to stockholders (255,032 ) (239,756 )
Cash used in financing activities (361,796 ) (233,497 )
Effect of exchange rate changes on cash and cash equivalents (1,145 ) 742
Increase (decrease) in cash and cash equivalents (12,044 ) 143,846
Cash and cash equivalents -- beginning of period 1,576,381 1,411,624
Cash and cash equivalents -- end of period $ 1,564,337 $ 1,555,470
Supplemental cash flow information:
Cash payments for income taxes $ 55,960 $ 139,625
Cash payments for interest $ 7,196 $ 7,212

Reportable Segment Results

Q3 FY2010 Q2 FY2010 Q3 FY2009
(In millions)

New
Orders

Net
Sales

Operating
Income
(Loss)

New
Orders

Net
Sales

Operating
Income
(Loss)

New
Orders

Net
Sales

Operating
Income
(Loss)

SSG

$1,535 $1,447 $525 $1,416 $1,404 $498 $542 $498 $67
AGS $595 $468 $84 $483 $456 $90 $298 $343 $24
Display $242 $216 $64 $256 $270 $90 $96 $69 ($8)
EES $353 $387 ($371) $378 $166 ($145) $136 $224 ($52)
Corporate-unallocated expenses $-- $-- ($119) $-- $-- ($147) $-- $-- ($108)
Consolidated $2,725 $2,518 $183 $2,533 $2,296 $386 $1,072 $1,134 ($77)

Effective in the first quarter of fiscal 2010, Applied changed its methodology for allocating certain expenses to its reportable segments. Applied has reclassified segment operating results for the three months ended July 26, 2009 to conform to the fiscal 2010 presentation.

Additional Information

Q3 FY2010 Q2 FY2010 Q3 FY2009
New Orders and Net Sales by Geography
(In $ millions)

New
Orders

Net
Sales

New
Orders

Net
Sales

New
Orders

Net
Sales

North America 342 294 300 230 147 139
% of Total 13 12 12 10 14 12
Europe 238 285 156 165 130 174
% of Total 9 11 6 7 12 15
Japan 233 203 158 233 151 130
% of Total 8 8 6 10 14 12
Korea 519 398 561 632 114 129
% of Total 19 16 22 28 11 11
Taiwan 733 707 655 699 261 393
% of Total 27 28 26 30 24 35
Southeast Asia 245 162 152 105 88 53
% of Total 9 6 6 5 8 5
China 415 469 551 232 181 116
% of Total 15 19 22 10 17 10
Employees
Regular Full Time 13,000 13,000 13,000
APPLIED MATERIALS, INC.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
Three Months Ended Nine Months Ended
August 1, May 2, July 26, August 1, July 26,

(In thousands, except per share amounts)

2010 2010 2009 2010 2009

Non-GAAP Net Income (Loss)

Reported net income (loss) (GAAP basis) $ 123,096 $ 264,004 $ (54,865 ) $ 469,851 $ (443,189 )
Certain items associated with acquisitions 1 20,985 30,242 22,425 77,189 73,274
Semitool deal cost - - - 9,860 -
Restructuring and asset impairments 2,3,4 135,331 8,968 - 248,143 159,481

Impairment of equity method investment and strategic investments

7,804 3,671 2,341 12,665 79,422

Income tax effect of non-GAAP adjustments and resolution of audits of prior years' income tax filings

(53,652 ) (14,701 ) (2,657 ) (112,960 ) (93,258 )
Non-GAAP net income (loss) $ 233,564 $ 292,184 $ (32,756 ) $ 704,748 $ (224,270 )

Non-GAAP Net Income (Loss) Per Diluted Share

Reported net income (loss) per diluted share (GAAP basis)

$ 0.09 $ 0.20 $ (0.04 ) $ 0.35 $ (0.33 )
Certain items associated with acquisitions 0.01 0.02 0.01 0.04 0.04
Semitool deal cost - - - 0.01 -
Restructuring and asset impairments 0.07 - - 0.12 0.08

Impairment of equity method investment and strategic investments

- - - - 0.05
Resolution of audits of prior years' income tax filings - - - - -
Non-GAAP net income (loss) - per diluted share $ 0.17 $ 0.22 $ (0.02 ) $ 0.52 $ (0.17 )
Shares used in diluted shares calculation 1,348,808 1,352,436 1,333,278 1,350,587 1,331,410

1 These items are incremental charges attributable to acquisitions consisting of inventory fair value adjustments on products sold and amortization of purchased intangible assets.

2 Results for the three months ended August 1, 2010 included asset impairment charges of $110 million and restructuring charges of $45 million associated with the EES restructuring plan announced on July 21, 2010, offset by a $20 million favorable adjustment to the restructuring plan announced on November 11, 2009. Results for the nine months ended August 1, 2010 included asset impairment charges of $110 million and restructuring charges of $45 million associated with the EES restructuring plan announced on July 21, 2010, restructuring charges of $84 million associated with the restructuring plan announced on November 11, 2009, and asset impairment charges of $9 million related to a facility held for sale.

3 Results for the three months ended May 2, 2010 included asset impairment charges of $9 million related to a facility held for sale.

4 Results for the nine months ended July 26, 2009 included asset impairment charges of $15 million related to wafer cleaning equipment and restructuring charges of $145 million associated with a restructuring program announced on November 12, 2008.

Effective the first quarter of fiscal 2010, the non-GAAP results no longer exclude the impact of share-based compensation. Previously reported non-GAAP results have been restated to conform to the fiscal 2010 presentation.

SOURCE: Applied Materials, Inc.

Applied Materials, Inc.
Howard Clabo (editorial/media), 408-748-5775
Michael Sullivan (financial community), 408-986-7977